The 60/40 Rule: Is the Classic Shares to Bonds Split Still Useful?

Q: Has the rule fallen away?

The specific number — 60/40 — is and was always a simplification and an illustration, never a law. What's genuinely fallen away is the idea that one fixed ratio suits everyone, and the assumption that bonds will always be a reliable hedge. What hasn't fallen away is the underlying principle: spreading money across assets that behave differently is still one of the few free lunches in investing.

Hugh at The Henry Desk
Jun 29
4 min read

Ask almost anyone in finance for a "default" portfolio and you'll get the same answer: 60% shares, 40% bonds. It's the most quoted rule of thumb in investing. But you'll also have noticed a steady drumbeat over the last few years declaring the 60/40 portfolio dead, broken, or hopelessly outdated.

So what is a typical split, where did it come from, and has the rule actually fallen away? The honest answer is more interesting than either "it's gospel" or "it's finished" — and for a high earner still in the wealth-building phase, the practical takeaways are different again.

The classic answer: 60/40

The idea is simple. You split your investments between two jobs:

Shares (growth) — the engine. Higher long-run returns, but a with greater risk and more likely to be a bumpier ride.
Bonds (defensive) — the shock absorber. Lower returns, but historically steadier, and has previously risen in value when shares fall.

Put 60% in the engine and 40% in the shock absorber and you get most of the growth with less of the volatility of an all-shares portfolio. The intellectual backbone is Modern Portfolio Theory, developed by Harry Markowitz in the 1950s (work that later won a Nobel Prize), which showed that combining assets that don't move in lockstep can lower a portfolio's risk without giving up much return.

Blended stock-and-bond funds have existed for close to a century, but the specific 60/40 mix really hardened into orthodoxy from the early 1980s onward. That era with decades of falling inflation and falling interest rates was close to perfect for the strategy: bonds delivered solid income, rose reliably when shares wobbled, and smoothed the whole portfolio out. By the 1990s and 2000s, 60/40 was baked into the CFA curriculum, pension policy and the default settings of the entire advice industry.

Has the rule fallen away?

The 2022 stress test. This is where the "60/40 is dead" headlines come from — and they're not baseless.

For 60/40 to work, shares and bonds need to move differently. The whole point of the bond allocation is that it zigs when shares zag. In 2022 however, with central banks hiking rates hard to fight inflation, shares and bonds fell together. It was the worst year for a 60/40 portfolio since the 2008 financial crisis.

The shock absorber failed exactly when it was needed, and the correlation between the two flipped from negative to positive - both shares and bonds moved in the same way at the same time.

That sparked several critiques, and they're worth separating:

"Bonds are back" (the rebuttal). Defenders argue 2022 was a one-off repricing, not a permanent break. The reason bonds offered so little cushion in the 2010s was that yields were near zero. After the rate rises, bonds once again pay a real yield, which means they can do their job again. Plenty of large managers have spent the last two years arguing 60/40 is "alive and well" precisely because the starting point for bonds is far healthier now.
"Add a third leg" (the evolution). Others accept the diversification benefit has weakened and argue two asset classes aren't enough. A popular alternative is 40/30/30 — 40% shares, 30% bonds, 30% alternatives (property, infrastructure, commodities, private markets). This adds a third return stream that doesn't track either shares or bonds. Notably, this is closer to what Australian super funds already do, with their unlisted allocations.

The specific number — 60/40 — is and was always a simplification and an illustration, never a law. What's genuinely fallen away is the idea that one fixed ratio suits everyone, and the assumption that bonds will always be a reliable hedge. What hasn't fallen away is the underlying principle: spreading money across assets that behave differently is still one of the few free lunches in investing.

So where does that leave a HENRY?

If you're a high earner still in the accumulation phase, most of these rules would point towards a heavily growth-tilted portfolio anyway — long time horizon, years of future contributions ahead, and the capacity to ride out volatility.

But the more useful questions for someone in this position usually aren't "60 or 75 or 90 percent?" They're things like: do you hold any defensive assets outside super, or is your whole non-super wealth in shares, property and an offset account? Is your super sitting in a default option that's more or less aggressive than you'd actually choose? And are you at risk of de-risking too early — drifting conservative out of caution while you've still got 20-plus years of investing runway?

Those are the decisions where a generic rule of thumb stops being enough and your specific circumstances start to matter.

This article is general information only and does not take into account your objectives, financial situation or needs. It is not financial product advice and the figures used (including the 60/40 examples) are illustrative only. Fund options named are referenced for illustration, not as recommendations. Asset allocation should be considered in light of your own circumstances — consider seeking personal advice before acting.